5.15pm: Time for a quick round up of the markets. And on a day of decline, the major fallers include Italy and Spain after renewed worries about their finances.

Italy's FTSE MIB is down 2.42% while Spain's Ibex 35 has fallen 3.99%. Elsewhere France's Cac is down 1.59% and Germany's Dax has lost just over 1%.

On that basis the FTSE 100 has got off lightly, just 0.38% lower at 5745.29. On Wall Street the Dow Jones Industrial Average is currently down almost 50 points or around 0.4%.

One of tomorrow's key events is the latest Spanish auction - it is offering €2.5bn of 2014 and 2022 government bonds and this will be closely monitored. Signs of weak demand and/or high yields will increase investor concern about the country's financial state.

Also up tomorrow are US weekly jobless claims and existing home sales for March, and more from the IMF and World Bank.

With that it's time to close up for another evening. Thanks as usual for all the comments, even if we didn't get a viable successor to Mervyn King.

4.37pm: And now, a little message to cheer up the Greeks. President of the European Commission Jose Manuel Barroso has recorded a brief video of encouragement.

Echoing the X-Files, he tells them "You are not alone" and goes on to say it is possible for the country to get back to growth and job creation. But everyone has to be committed.....

3.46pm: Thanks to windguy below for highlighting a report that billionaire hedge fund manager John Paulson is shorting German bonds because he believes the eurozone crisis will get much worse in the months to come.

If it gets as far as Germany, it surely really is all over. The Financial Times story is here (but may require a sign-in.)

(Mind you, Paulson's funds made steep losses last year even if his long term track record is pretty good.....)

3.39pm: Another unexpected consequence of the financial crisis - a museum in Italy has begun burning an artwork a day to protest against its lack of funding. Read John Hopper's report here, including the reaction of the first artist to have their work destroyed.

3.24pm: The Swiss government has named its new central bank chairman (another name off the list of those who could replace Mervyn King).

Thomas Jordan, who has been acting as interim chairman of the Swiss National Bank, has now got the job full time. This seems to suggest it will maintain its cap of €1.20 to the franc.

3.16pm: Wall Street has joined in the market slippage, down around 40 points in early trading. The renewed fears about Spain and Italy have obviously been transmitted across the Atlantic. Meanwhile the FTSE 100 is down around 11 points, France is off 1% and Germany is around 0.6% lower.

Speaking of the US, Treasury secretary Timothy Geithner said the International Monetary Fund was in a position to raise substantial funds on short notice, but it could not be a substitute for Europe responding strongly to the financial crisis. The US is of course worried about the effect of Europe's problems on its own economy. So it clearly wants to help solve the crisis, but obviously feels it is worth repeating that there is no open cheque book. According to Reuters, Geithner said:

The IMF is in a very good position ... to demonstrate to the world that ... it has the ability to raise additional finance from other countries very, very quickly if it needs to do that.

What we did not want to see is people look to the IMF as a way to substitute for a more forceful European response.

2.54pm: There's a disappointing lack of suggestions for the next Bank of England governor in the (otherwise excellent!) comments below.

Iranda, though, does suggest a selection criteria in response to my query -- any economist who:

1. has a proven track record of controlling inflation at the 2% target (the list is already getting short....)2. saw the recession coming3. oh dear, perhaps I need to broaden the selection criteria......

2.36pm: Today's Global Financial Stability Report from the IMF includes this graphic showing how the world economy has stabilised since January:

International Monetary Fund.

It shows how risk appetite has returned in recent months, while credit and liquidity risks are slightly lower. But as the IMF warned (see 2.12pm), European banks are still under heavy pressure, and could trigger a credit squeeze if they mess up their deleveraging plans.

2.12pm: Europe's banks risk triggering a new credit crunch, the International Monetary Fund has warned, in its latest assessment of the state of the global financial system.

In another bracing assessment of the world economy, the IMF predicted fresh chaos if banks embarked on an overly aggressive drive to repair their balance sheets

The Global Financial Stability Report was issued in Washington at the IMF's Spring gathering, from where Larry Elliottreports:

The IMF said it was "essential to continue to avoid a synchronised, large-scale, and aggressive trimming of balance sheets that could do serious damage to asset prices, credit supply, and economic activity in Europe and beyond."

The IMF said it expected 58 of the biggest banks in the European Union to slim down by $2.6bn (£1.6bn) by the end of 2013, or almost 7% of their assets. While 75% of the deleveraging would be as a result of asset sales, credit would also be harder to obtain.

In the event governments stalled on reforms or were overwhelmed by fresh shocks to the system, the Global Financial Stability Review warned of a much more severe credit crunch that would see balance sheets reduced by almost $4 trillion and credit supply cut by 4.4%.

1.50pm: Important news from Italy this afternoon – the Italian government has torn up its targets for economic growth and deficit reduction.

Mario Monti's government said now expects to suffer a 1.2% fall in GDP in 2012, not the 0.4% decline previously pencilled in. It also admitted that its deficit will be higher than planned over the next two years.

It now expects to post a deficit of 0.5% of GDP next year, up from a previous target of 0.1%.

Monti's honeymoon as technocratic prime minister would appear to be over (if it wasn't already!).

And actually, these new targets are much more optimistic than the latest predictions from the IMF. Only yesterday, it forecast a 1.9% slump in Italian GDP this year.

1.03pm: Today's warning from Bundesbank head Jens Weidmann that solving Spain's problems is not the job of the European Central Bank (see 10.41am) has caused some disquiet in financial markets.

With the main Spanish stock market still down by over 3.1%, the euro has also dropped (to around $1.308 against the dollar, down half a cent from earlier highs).

Hans Redeker, head of global FX strategy at Morgan Stanley, said Weidmann's comments were weighing on the markets:

The Spanish equity market has been hit drastically today, we also had Mr Weidmann's comments coming out. This negative impact on capital markets in Europe is the driver for euro weakness.

More reassuringly, Spanish 10-year bond yields are still down below the 6% mark that gets some of us excited. That's despite Weidmann saying that high yields alone don't justify ECB intervention. As he put it to Reuters:

I don't think you will find any colleague (on the ECB Council) who is of the view that the Eurosystem (of euro zone central banks) is there to ensure a particular interest rate level for a particular country.

12.46pm: Today's construction data shows that Europe's building sector is still in a bad way. Activity fell by 3.7% across the EU in February, and by a whopping 7.1% within the eurozone.

The big surprise was Germany, which suffered a 17.1% squeeze from one month to the next. Italy (-9.9%) and Slovenia (-10.3%) added to the gloom. Construction output in the UK increased 5.4%.

Economics correspondent Phillip Inman explains:

The UK and German can be seen as a tale of two winters. The UK rise can be interpreted as a rebound from a profoundly bad winter starting in 2010. Germany, on the other hand has suffered terrible snow and ice in recent months. But that depiction is too simplistic, especially in the German case where the decline is over the whole year.

Since February 2011 construction activity is down 21.4%. Economists have blamed a spending freeze by public bodies for much of the collapse in building. Only Slovenia and Italy were worse with falls of 27.5% and 23% respectively.

German construction companies are more optimistic about the rest of this year, according to sentiment surveys, though they will be clawing their way back from a low base.

12.27pm: An interesting research note from UBS argues today that Ireland should be given plenty of slack by the Troika if it misses the targets set under its bailout.

FT Alphaville has the full note (scroll to 11.28am its excellent Markets Live session). Here's a flavour:

The more important factor is that Europe needs Ireland to succeed as much as Ireland needs Europe. Why is that? Quite simply, because here is a country that has diligently stuck to the fiscal targets and also adopted a textbook reform agenda: if it fails, there is a risk that other vulnerable economies such as Portugal, Spain and Italy will fail too.

The IMF forecasts a 6% deficit shortfall in 2012 followed by 5.7% in 2013 versus the Spanish government pledge to achieve a 3% budget deficit by 2013.

Update: City analysts and traders are also citing Jens Weidmann's warning that Spain should not expect too much help from the European Central Bank, and the record bad debt data reported this morning (see 10.41am).

11.15am: Germany has sold €4.21bn of debt at a record low this morning, as investors continued to rate its bonds as a ultra-safe haven.

At just 0.14%, the yield (effectively the interest rate) on the two-year bonds is the lowest recorded. Last month, debt with the same maturity was sold at a yield of 0.31%.

Despite such a small rate of return, the auction was still popular with investors. German authorities reported a bid-to-cover ratio of 1.8%, although another €800m of bonds were held back to be sold later through the secondary bond market.

Analysts see the auction as a clear success for Germany, at a time when fears of a deepening eurozone crisis remain high. Michael Leister of DZ Bank said:

Once again it tells the story that demand for safety remains in place.

10.41am: Back to the eurozone crisis, and the head of the Bundesbank has given Spain a blunt warning not to rely on the European Central Bank to pull it out of the mire.

Jens Weidmann fully justified his reputation a monetary hardliner, telling Reuters that there's no reason to panic just because a country's bond yields spike temporarily. He also slapped down Nicolas Sarkozy's suggestion that the European Central Bank should give more attention to economic growth.

Jens Weidmann, pictured last month. Photograph: Thomas Lohnes/AP

Here's the key quotes from Weidmann on rising borrowing costs:

We shouldn't always proclaim the end of the world if a country's long-term interest rates temporarily go above 6%....That is also a spur for policymakers in the countries concerned to do their homework and to win back (market) confidence through the pursuit of the reform path.

And on Sarkozy:

It fills me with concern that a softening of the mandate is being discussed...A fundamental discussion about changing the mandate can definitely have effects on inflation expectations.

Weidmann's comments hit the wires alongside new data from the Bank of Spain which showed that the amount of bad loans on Spanish bank books has hit an 18-year high, as property assets turn sour. There is now €143.8bn of 'non-performing loans' lurking within the Spanish banking sector.

Youth unemployment, which has been a political flashpoint, also declined slightly, by 9,000 in the three months to February (the most up-to-date figures the ONS provides), leaving a total of 1.03 million 16 to 24-year-olds looking for work. The unemployment rate for this age group was 22.2%, down from 22.3% three months earlier.

However, there was a fresh increase in the number of 18 to 24-year-olds who have been unemployed for a long period.

And economics correspondent Phillip Inman cites other reasons be cautious – almost all the positive news is in the rise of part-time work:

Full time jobs remain in retreat. There is also the crucial issue of pay. Average pay across the economy has risen by just 1.1% in the past year, while inflation continues to average at 3.5%.

Recruitment firm totaljobs.com is also unimpressed:

Whilst on the surface they look rosier than those of the past few months, they hide a number of concerns – not least the staggeringly high levels of underemployment – and they don't take into account news from the last couple of months. We have seen the retail sector take another battering, with more closures announced, and concerns for the Eurozone have resurfaced.Despite today's figures, we expect unemployment to continue to rise through 2012 albeit more slowly than previously.

Grayling claimed that the government's drive to rebalance the British economy is paying off, with 35,000 fewer people out of work in the three months to February.

Today's figures are a step in the right direction but we still have a long way to go. We are pushing ahead with our strategy to promote investment and newjobs in the private sector and support people currently without work to take up those jobs.

I am particularly encouraged that overall employment is now growing despite reductions in the public sector.

Labour, though, is unimpressed that 2.63 million people are out of work, and points to the rise in the claimant count (to 1.613 million). Shadow work and pensions secretary Liam Byrne responded:

We've had two years of excuses and now we've got the evidence – this Government has utterly failed to tackle Britain's jobs emergency, and we are limping along in crisis.

The number of people signing on is going up, we still have more than a million young people out of work, more women unemployed than since 1987 and a benefits bill that is spiralling by the day.

9.55am: The pound jumped on the news that Adam Posen did not vote for an increase in the Bank of England's quantitative easing programme this month (see 9.32am).

News of the 8-1 split sent the pound up a cent against the euro to €1.2218. That's its highest level since August 2010.

Pound vs euro. Photograph: Reuters (timings in GMT) Reuters

Measured against a basket of currencies, the pound is also at a 19-month high.

Posen has been a long-time Bank dove, and was the first member of the monetary policy committee to vote for more quantitative easing. The rest of the MPC eventually agreed with him. However, his prediction in March 2011 that inflation would fall below the 2% target by this summer looks less inspired (it actually rose to 3.5% last month).

Forecasting has not been one of Adam Posen's strengths but up to now he has been consistent at least...

9.35am: This morning's UK unemployment data looks surprisingly good.

By the ILO measure, the number of people out of work in Britain fell by 35,000 in the three months to February to 2.65 million. That takes the headline unemployment date down to 8.3%, from 8.4% last month.

However, the claimant count rose by 3,600 in March, taking the number of people out of work and claiming benefits to 1.613m.

9.32am: The Bank of England was split last month over whether to leave its quantitative easing programme unchanged, or pump even more electronic money into the economy.

Minutes from the last meeting were just released, showing that David Miles wanted to increase the QE budget by another £25bn to £350bn. The rest of the committee voted to leave the asset purchase programnme unchanged.

According to the minutes, Miles took a 'finely balanced' decision that another stimulus measure was needed.

Adam Posen, though, the long-time dove on the MPC, did not call for more QE. If anyone would want an extra dose, he seemed the most likely.

8.59am: Who do you think should run the Bank of England?

With Sir Mervyn King due to step down in June 2013, speculation over his successor is picking up pace. The latest story (today's FT front page) is that Mark Carney, currently governor of the Bank of Canada, has been tapped up. This has been robustly denied by all sides, but Mr Carney will still join other possible candidates such as deputy governor Paul Tucker, Treasury mandarins Lord Sassoon or Gus O'Donnoll, or former Barclays CEO John Varley.

But the shortlist could be longer. If you live in the UK, who would you trust to manage inflation and the stability of the financial system. And if you're overseas, perhaps you've got a central banker with the skills for the job (or one you're keen to be rid of!).

8.49am: It's a mixed picture across Europe's stock markets, as the optimism of Tuesday fades away. Here's an early round-up:

UK FTSE 100: up 9 points, or +0.16%, at 5777German DAX: down 29 points, or -0.44%, at 6771French CAC: down 22 points, or -0.69%, at 3269Spanish IBEX: down 47 points, or 0.63%, at 7328Italian FTSE MIB: down 61 points, or 0.41%, at 14878Portuguese PSI: down 1 points, or 0.02%, at 5236

Traders appear to be sitting on their hands until tomorrow's Spanish debt auction:

Mike McCudden, head of derivatives at Interactive Investor, commented:

Investors look to be in a dilemma this morning over which way to turn following some surprisingly good news from Spain and a run of decent corporate results in the US.

Yesterday's rally was built on thin volume and in the face of a longer dated Spanish bond auction only the brave would consider entering the market at the current level.

8.33am: Speculation that Portugal might need extra help have been rumbling throughout 2012. In January, Standard & Poor's became the third credit rating agency to cut it to Junk, sparking a selloff of its bonds.

But there is a clear deadline. Portugal needs to repay €9bn in September 2013. As the Wall Street Journal reported in late January:

While that date is still far off, the International Monetary Fund could require Portugal to present its financing plans a full year ahead before releasing more aid, as it did with Greece. And as with Greece, the IMF may demand fresh bailout terms if it becomes clear the country won't be able to return to market in a year.

The country's fundamental problem is its very weak growth over the last decade (after a brief surge in the early days of the eurozone). It faces major competitiveness problems, which can't be easily fixed within a single currency.

The yield on Portuguese 10-year bonds is trading with a spread of between 11.7% and 12.7%,, up slightly this morning. That's roughly twice the yield of Spain, suggesting that traders are pricing in a strong risk of a Greek-style restructuring.

In contrast debt issued by Ireland (another country that has taken a bailout), is trading at much less distressed levels. Its 10-year bond yield is just 6.9% this morning -- the edge of the 'danger zone'.

7.58am:Pedro Passos Coelho, Portugal's prime minister, insists that he remains optimistic about his country's future. But, in a Financial Times opinion piece that will be closely read in the City today, the centre-right politician also concedes that Portugal may need more help.

The full piece is online here (although you may need an FT subscription).[and not in today's paper version]

Passos Coelho begins by recognising that some analysts believe Portugal will require a second bailout. They are wrong, he believes. But, with so much uncertainty in the eurozone crisis, there are "no guarantees".

There are so many factors outside our control that no one can make predictions with any certainty.

We are utterly committed to fulfilling our obligations. But while we are optimistic, we must also be realistic and pragmatic.

This is why we accept that we may need to rely on the commitment of our international partners to extend further support if circumstances beyond our control obstruct our return to market financing. All we can know for certain is that our commitment to deliver on the terms and conditions of our adjustment programme is unwavering.

Pedro Passos Coelho last June, when he won power. Photograph: Paulo Duarte/AP

Passos Coelho won power back in June 2011, ousting socialist prime minister José Sócrates. He blamed previous administrations for the "irresponsible path" that led the country into years of low growth. Perhaps optimistically, he writes that the current programme agreed with the IMF will lead to economic growth, and lower debtm, but then concedes:

We are well aware of the argument that austerity programmes and actions to balance the current account can be detrimental to growth in the long term. That is why we are focused on delivering a balanced package of measures. However, fiscal and external balances are preconditions for sustainable growth, competitiveness and employment creation. They provide the ground for structural change.

Portugal marked the one-year anniversary of its bailout earlier this month. Under that plan it was due to return to the debt markets in next year. Passos Coelho argues that this can still happen, but concludes:

There are no guarantees and we cannot legislate for events out of our country's control. But I am convinced that we will only succeed if we deliver on the greater goal of fundamental reform, which will restore the prosperity of Portugal. That is the end we seek.

7.45am: Good morning, and welcome to today's rolling coverage of the eurozone debt crisis, and key events across the financial spectrum.

Coming up.....Portugal's prime minister has admitted that his country may require more help. Writing in the Financial Times today, Pedro Passos Coelho said there were "no guarantees", but insisted that he will deliver on economic reforms. Full details and reaction shortly.

Elsewhere... the International Monetary Fund's spring meeting continues in Washington. Today we get the Global Financial Stability Report.

In the UK, the latest unemployment data is released this morning, along with minutes from the last meeting of the Bank of England's monetary policy committee.

City traders reckon European stock markets will open calmly after yesterday's rally.